The arrest this week by the FBI of Thomas Trauger, a former partner in accoutants Ernst + Young, is one of the first cases involving document destruction covered by the Sarbannes-Oxley corporate reform act brought in in the wake of scandals such as the collapse of Enron and WorldCom. The case relates to audit work done by Ernst & Young for the now bankrupt San Francisco-based online credit card company NextCard. Sarbanes Oxley – here we come!

The Securities & Exchange Commission has brought proceedings against three former Ernst & Young employees, accusing them of altering records from the NextCard 2000 audit after becoming concerned that regulators were poised to investigate the work.

One of its actions, against Trauger and former Ernst & Young audit manager Michael Mullen, is yet to be settled.

The other, against former senior Ernst & Young manager Oliver Flanagan, has been dealt with after he admitted obstructing the examination of a financial institution.

US Attorney Kevin Ryan said: “This is one of the first cases in the country in which an auditor has been accused of destroying key documents in an effort to obstruct an investigation.”

Ernst & Young said: “The actions by one of our former partners in the US and a former employee of our affiliated firm in Ireland to modify certain NextCard audit records after completion of our audit were a clear and serious violation of firm policy and professional standards.”

The accountancy firm said that it had alerted the authorities as soon as it had become aware of the problems and had provided them with “clear and unfettered access to our people and records”.

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